Memorandum by the Assistant Chief of the Division of Near Eastern Affairs (Barnes)

The Yugoslav Minister6 called by appointment on Mr. Sayre7 at eleven o’clock this morning.

The Minister regretfully informed Mr. Sayre that his Government had concluded that it could not accept the modus vivendi offered in our note of December 17, 1936.8 The Minister stated that he had received telegraphic instructions to this effect in which he had been directed to communicate the information to the Department and to state that his Government accepted in principle the alternative proposal to set aside temporarily the most-favored-nation provisions [Page 587] with respect to trade of the Treaty of 1881.9 The Minister added that he expected to receive detailed instructions by mail which presumably would clear the way to the early signature of the alternative proposal.

The Minister explained that it was with great regret that he had learned of his Government’s choice and he expressed the opinion that those who had taken the decision no doubt regretted it as much as he did. However, with the proceeds of more than 400,000,000 dinars of Yugoslav exports blocked in Germany and with 150,000,000 blocked in Italy (about 15 percent of his country’s total annual exports), it was quite clear that his Government had no other course than to bow to the exigencies of the moment. The Minister said that he had been instructed to make it clear that even after the most-favored-nation provisions with respect to trade of the 1881 Treaty had been formally set aside his Government would continue to apply its import regulations in the most favorable manner to American commodities.

Finally, the Minister mentioned that it had been stated in his telegraphic instructions that his Government was working on a clearing or compensation arrangement with respect to trade with the United States which it would soon have in shape to propose to us. The Minister seemed much puzzled by this feature of his instructions in view of the fact that our note of December 17, 1936, had explained in great detail that our policy was expressly directed against the extension of all the devices of controlled trade.

Mr. Sayre expressed regret that the Yugoslav Government had concluded that it could not accept the proffered modus vivendi. He said that he of course realized the practical effect of German trade practices on such countries as Yugoslavia and that it was just such situations that we hope to correct in time through our trade agreements policy. Under these circumstances we of course are not in a position to consider offers of clearing or compensation agreements, such agreements being in fact part and parcel of the evil which it is our hope will be checked and ultimately uprooted by the determination of certain nations at least to retain the most-favored-nation principle as the basis of their trade relations.

Mr. Sayre expressed the hope that the Minister would receive his detailed instructions shortly so that the agreement to set aside certain of the Articles of the 1881 Treaty may be concluded in time to obtain the Senate’s consent to ratification before the end of this session of the Congress. The Minister seemed of the opinion that his instructions would reach him within the next week or two.

  1. Constantin Fotitch.
  2. Francis B. Sayre, Assistant Secretary of State.
  3. Foreign Relations, 1936, vol. ii, p. 825.
  4. Convention of Commerce and Navigation between the United States and Servia; William M. Malloy (ed.), Treaties, Conventions, etc., Between the United States of America and Other Powers, 1776–1909 (Washington, Government Printing Office, 1910), vol. ii, p. 1613.